Overcoming Original Sin

This paper draws on newly expanded BIS government bond statistics to document how emerging market sovereigns have reduced their reliance on foreign currency denominated bonds since the emerging market crises of the 1990s. With external funding still important for emerging market governments, they ha...

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Bibliographic Details
Published in:Journal of globalization and development 2022-12, Vol.13 (2), p.411-433
Main Authors: Shin, Hyun Song, von Peter, Goetz
Format: Article
Language:English
Subjects:
Bond markets
Bond portfolios
Corporate debt
Currency
emerging market economies
Emerging markets
F34
Foreign exchange rates
foreign investors
G15
Government
Government bonds
H63
International finance
international financial markets
International lending
Market economies
Original Sin
Securities markets
sovereign bonds
Sovereign debt
Trends
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Summary:This paper draws on newly expanded BIS government bond statistics to document how emerging market sovereigns have reduced their reliance on foreign currency denominated bonds since the emerging market crises of the 1990s. With external funding still important for emerging market governments, they have increasingly been able to borrow from foreign investors in their domestic currency. In this respect, emerging market governments are overcoming “Original Sin”. The flipside of these developments is that foreign investors increasingly bear the currency risk associated with fluctuations in emerging market exchange rates, making foreign investors’ portfolio decisions more sensitive to prevailing global financial conditions. Emerging markets thus remain vulnerable to reversals of investor sentiment in bond markets, whether or not they have outstanding debt in foreign currency.
ISSN:1948-1837
2194-6353
1948-1837
DOI:10.1515/jgd-2021-0055